Background:

In terms of the provisions of the Companies Act No. 71 of 2008 (“Companies Act”), every company must possess a Memorandum of Incorporation (“MOI”). The MOI specifies the rights, duties, and responsibilities of shareholders, directors, and others, within or related to a company. A company may, from time to time, require its MOI to be amended and/or updated to accommodate changes to the company’s organisational structure, to adapt to changes in governance standards, to comply with operational requirements, to adhere to updated legal regulations, to amend certain provisions of the Companies Act (as this is the sole document that allows a company to make such amendments to the Companies Act) and/or to adjust the number of authorised shares, reclassify or classify unissued shares, and set terms for share classes.

Procedural Requirements for MOI Amendments:

An MOI can be amended by adopting a new MOI in substitution of an existing MOI, or by making alterations to the existing MOI through changing the name of the company, deleting, altering or replacing any provisions, inserting new provisions, or a combination of the aforesaid.

To amend an MOI, a special resolution of shareholders is required. There are exceptions where, unless the MOI provides otherwise, the board may amend the MOI. These exceptions are mentioned below.

The board of a company or an individual authorised by the board, may modify the MOI to rectify evident errors in spelling, punctuation, references, grammar, or similar defects. Upon modification of this nature a notice of the alteration as stipulated in the company’s MOI must be published.

The board may further amend the MOI by board resolution alone in order to increase or decrease the number of the authorised shares of any class, reclassify classified shares that have been authorised but not issued, classify unclassified shares that have been authorised but not issued and/or determine the preferences, rights, limitations, or other terms of shares in a class.

The MOI may also be amended by a court order, which court order must be effected by resolution of a company’s board.

After the required resolutions have been adopted, the amended MOI, and other supporting documents, must be submitted to the Companies and Intellectual Property Commission (“CIPC”), and payment of the required fee must be made.

In the event of a name change, the change shall be considered effective on the date set out on the amended registration certificate issued by the CIPC, and in the event of any other amendments, the change shall take effect on the later of the date and time of filing the notice of amendment or the date specified in the notice of amendment. In light of the aforesaid, it is worthy to note that the MOI cannot be amended retroactively.

Substantive Requirements for MOI Amendments:

The Companies Act requires that any modifications to the MOI must strictly adhere to the requirements set forth within the Companies Act. Therefore, any amendments in an MOI that deviate from the Companies Act will not be legally effective or enforceable, subject to the following: a company may include certain provisions on matters not addressed by the Companies Act, a company may alter the effect of any alterable provisions of the Companies Act, a company may impose on the company higher standards, greater restrictions or longer periods of time or any similarly more onerous requirements than those that are required by unalterable provisions of the Companies Act.  The companies MOI may also include restrictive conditions and establish additional requirements for amending those conditions. It is therefore important to ensure that any modifications to an existing MOI, complies with the requirements of the existing MOI.

In the case of Allen v Gold Reefs of West Africa Ltd (1900) it was reiterated that a company should consider the general principles of law and equity upon altering its MOI.

Failing to comply with Companies Act and the existing MOI when amending your MOI can result in changes that are void. This may cause directors of a company to breach fiduciary duties and/or expose themselves to other risks, by following an MOI that is not legally effective. Ensuring alignment with both the Companies Act and the company’s specific requirements is crucial in maintaining legal compliance and safeguarding the interests of all stakeholders.

Concluding remarks:

Whether amending an existing MOI or drafting a new one, it’s imperative to proceed with careful consideration. The MOI stands as one of the most pivotal documents within a company’s governance framework.

VDMA’s team of experts is at your disposal for the drafting of new MOI’s or amending existing MOI’s.

Published 29 May 2024